tv World Business WHUT March 14, 2010 10:00am-10:30am EDT
>>abirached: this week on world business... >>: 26 years of civil war and political instability have damaged sri lanka, but the country has the potential for serious growth. >>: after navigating through those stormy waters, the future post war is looking very, very positive. >>: why countries from mena are forging closer ties with china. >>: ten years ago less than ten percent of our trade was with asia, today it is around 30 percent and growing. >>: and as president obama plans to crack down on the banks, we meet corrado passera, head of intesa sanpaolo one of the eurozone's biggest. >>: commercial banking, real economy banking, has to be
regulated in a different way from trading activities. >>abirached: >>abirached: hello and welcome. i'm raya abirached and this is world business, your weekly insight into the global business trends shaping our lives. sri lanka's 26 years of civil war has been hard on the country and despite the conflict ending last year political tension is still high. but the country also has serious potential for growth and the government believes once the election next month is over will look even more appealing to outside investors. >>reporter: as sri lanka's elite look out
on their horizon, they see incredible potential... an island nation atindia's southeastern tip...that could become another economic power house in the region. >>: statistically, sri lanka appears on course for its dream: the economy this year is expected to grow by at least 6 percent... and per capita gdp is already far ahead of india's. last year its stock market was the world's second best performer after russia. >>silva: most people expecting strong returns. and possibly it could even match last year returns or exceed it. >>reporter: such strong returns have already ignited the interest of investors who specialize in so-called frontier markets. >>: nirosh de silva, managing director of leopard capital sri lanka, is now raising money for the company's first two funds-a 100 million dollar private equity fund... and a 30 million dollar fund for listed equities.
we are in the first phase of a 10 year period of growth. so in that sense, whether you lost the first year of it or not, there's still nine years of solid growth ahead of you. >>reporter: de silva and his team are now marketing their funds in singapore, hong kong, europe and the us... expecting returns of 25 percent. courting western investors is difficult. they worry about war crimes allegations involving the tamil minority... as well as the country's safety and stability. >>peterson: political tensions here remain high and so does security. police checkpoints line the streets of thecapital to stop cars at random. taking video footage in public places is difficult. some observers worry such strong arm tactics by the government may keep western investors on the sidelines.
>>reporter: to calm tensions... sri lanka's president has promised relief and reconstruction for areas devastated by 26 years of war...that means improving the island's infrastructure and raising living standards... particularly forthe many tamils who are barely scraping by. >>: the private sector appears to be leading the way. cargills, the largest grocery chain, interviews hundreds of young tamil applicants every week, including those from villages formerly controlled by the tamil tigers in the north and east parts of the island. >>: ceo ranjith page, himself a tamil, believes sri lanka will solve its ethnic divide peacefully. as he sees it... terrorism and war are over. >>page: i think the west should not be concerned that this thing is going to come up again. this was very sad what happened but it won't happen again. i think when we get older we become wiser. and i am sure that anyone who ever thinks that he can create such
a thing i think he is foolish because we're moving on. and when people have employment and extra money to spend, they are not interested in these petty things as sri lanka problems. they want to be ahead of neighboring countries. >>reporter: sri lanka's elites are confident that more and more outside investors will soon recognize the nation's economic potential... they say fears about political stability should cease once the april parliamentary elections are over. >>silva: after april that uncertainty factor will be addressed totally. it will be very positive period for the country, for investors and for all stakeholders engaged in the markets. >>reporter: asian investment is already significant. the chinese government is now investing heavily in a deep sea port... a power plant and this cultural center. >>: domestic investment is also
growing. the shares of some 120 companies are actively trading. this stock brokerage belongs to sri lanka's largest listed conglomerate... john keells holdings. >>:brokering tea ... a product sri lanka is famous for... is also under john keells large umbrella of companies in a variety of sectors... >>: the firm plans to rapidly expand condominium development to meet projected local demand... and luxury hotels to meet expected foreign demand. >>gunewardene: we are bullish about almost everything in this environment. this company performed well for 26 yearsduring the war. after navigating through such stormy waters, the future post war is looking very, very positive. >>silva: come visit sri lanka. take a look at this nice island,
south of india and look at the tourism potential to india. look at the trade we could do with india. that'll give confidence that sri lanka is agreat place to invest. >>reporter: those predictions are echoed by a growing number of financial observers who see a spectacular rebound ahead. there's no doubt... sri lanka is a frontier market worth watching. >>abirached: china is the great economic success story of the century, the second largest economy in the world and expanding at a near double digit rate. as the country grows in wealth and stature it is increasingly forging closer ties with countries in the middle east and africa which give it greater access toboth resources and markets. and countries from these regions are actively courting china.
>>reporter: >>reporter: the start to the chinese year of the tiger's certainly a little hazy for hong kong, but out of the mist there's another tiger moving east -- one that's bigger and bolder -- despite the economic woes clawing at the west. >>banks: tiger of the nile which i think gives you an idea of the type of economy we imagined egypt to be moving towards...egypt has been a place that has come through the global recession with its reform agenda intact. >>reporter: it's this bold agenda that's now motivating egypt's prowl eastwards. a 60-strong delegation of ministers, businessman and financiers is out in force courting china and singapore. the aim: to boost trade between two global gateways - that
of africa and asia. >>mohieldin: ten years ago less than ten percent of our trade was with asia, today it is around 30 percent and growing. >>saleh: it was easy to go to the european or the western and usa before. but with the crisis, i think they should think of diversifying their relationships. definitely they cannot rely on some european economies now or even the growth in the u.s.. >>reporter: a fact not lost on asian investors - they're motivated by bumper foreign reserves and sovereign wealth funds. egypt's solid growth rates are also proving attractive, as are its preferential trade agreements with europe, the u.s. and the middle east. >>ho: they have to basically make known to the world the growth opportunities. they do offer
a sizeable market. >>choi: i think china has a lot of money now and especially i think china will invest in the infrastructure of egypt. >>reporter: egypt's investor road show builds on last november's forum on china-africa cooperation meeting in sharm el-sheikh - one which saw african debts slashed and ten billion dollars in concessional loans offered. >>: it's fuelling business between the two continents. egypt's annual trade alone with china is now oversix billion dollars. >>easen: traditionally china's trade with africa was conducted at places like chung king mansions here in hong kong. small traders buying and selling goods such as electronics and mobile phones, but in the last few years china's trade with resource rich africa has intensified. it's not just about fuelling china's economic growth. africa's population of one billion still represents an untapped market for china's exports.
>>shu: china i believe is interested in developing it's collaboration across the world, on the other hand ithink what china ends up doing also depends on whether it is being received well, which market is more receptive to the chinese approach. >>reporter: egypt is certainly receptive - and is mirroring china's model of industrialisation. now the tiger ofthe nile is creating special economic zones that offer a one-stop shop, dealing with labour to taxation. >>mohieldin: the chinese investments in egypt during the last five years, first you see this kind of surge in numbers to reach 1,022 enterprises with chinese investments, 85 percent of which have been established in the last few years. >>reporter: already china has invested over 300 million dollars in egypt, with one of china's most active economic zones
from tianjin, trying to replicate its success here. >>jianqing: potential market maybe 1.5 million - 1.5 billion customers here. and also you're about 40 kilometresfrom the suez canal and the location is really important here. >>reporter: however, a few of asia's recent engagements with africa have caused controversy. critics say some companies exploit the continent's abundant natural resources, while investing little in industries that add value. an accusation that holds little sway with the egyptians. >>mohieldin: they are mainly in manufacturing and services... so this is an example of chinese investments, away from traditional sectors of energy and natural resources, which is basically typical of other african countries. >>reporter: it helps that egypt has
an educated labour force and one of the largest consumer markets in the araband african worlds -- with over 80 million people. >>kamel: we have 60 million mobile users, 20 million internet users and we still see immense growth in egypt.we are adding one million mobile subscribers each month. >>saleh: having a deeper and stronger presence in africa would only come i assume through egypt...due to the reasons i mentioned before...infrastructure and a manpower and political stability. >>reporter: egypt is certainly leading the way, heralding new african economic models of engagement with asia that are less exploitive. the question is whether asia's appetite for investment can see beyond its thirst for africa's natural resources. >>: still to come on world business... >>: regulation is coming, but not
all in the banking community resent it. we speak to corrado passera, ceo of one of europe's leading banks intesa sanpaolo >>: and how the world's largest motorbike maker has been keeping the power on throughout economic downturn. >>: on a roll...and the rest in just a moment on world business... >>: president obama's intention to crackdown on banks has not endeared him to many in the banking community, but there are those that support at least some of his ideas. our executive editor alan friedmancaught up with corrado passera, head of one of the euro zones biggest banks, intesa sanpaolo, to get his take on the situation. >>friedman: president obama has recently been attacking wall street
and calling for banks not to have the right to engage in propriety trading, hedge funding or private equity anymore. as a head of a 5 billion euro bank, what your reaction to obama's call for the separation of these activities? >>passera: commercial banking and investment banking are very different animals. we call both banks but i wouldnot call them banks. investment banking is a very important activity but should not be mixed with real economy banking that has to do with deposits, landing, loans, enterprises, long term relationships. so there is a value in what obama is saying. there is a value in what he has been saying and thefinancial stability board has said something very similar; so let's be careful not to destroy valuein universal banks that have developed both areas of activities but rewarding real banking,
commercial banking with the right capital requirements, with the right regulations and leave the trading activities, the security business separate with different rules is an idea to be considered very attentively. >>friedman: so that makes you one of the first global bankers i have met who agrees with barack obama >>passera: i agree on the discussion of this point and on the separation and on the different treatment of the two industries that are very different. commercial banking, real economy banking has to be regulatedin a different way from trading activities. >>friedman: and how much of a responsibility would you say bankers, particularly in the united states, have to bear for the state of the world today? >>passera: again, many different kinds of banks, many different roles played, many different positions taken vis-a-vis the real economy so we cannot
talk about banks in general. for sure, the banking system and those who want to regulate it and control the system, have not performed properly in the last few years especially in the anglo-saxon countries. >>friedman: so you would be one of those who would agree with the criticism of alan greenspan as having let all the securitization and all the derivatives get out of control? >>passera: yes, that was a mistake not taking into the right dimension the indebtedness of banks. leaving and letting banks to play too much with the mismatching of assets and liabilities and not taking hidden liabilities, balance sheet liabilities into the balance sheet have been three big mistakes. there arecountries where rules were clear and these things have
not happened. >>friedman: let's talk about the macro economy and starting with europe. nouriel robini, joe stiglitz and the other pessimists who are some would say realists have all been saying that they're worried the united states will have a relapse in macro economic terms, double dip recession that the euro zone is not going to be strong in the next year or two. what's your prediction about the european economy over the next few years? >>passera: roubini has clearly said that in his opinion the economy will have a u shape and i tend to agree. >>friedman: a long u >>passera: a long u but a u. at the same time we all agree that in 2010, 2011, the world as a whole will grow but the merging markets will grow fast and traditional regions of the world will grow very little. amongst this part of the world, europe will be the lowest growing region
of the world and unfortunately within this region some countries like italy and spain will have even lower levels of growth. if we don't grow more within europe, we will not be able to cope with the problems we have on the table.unemployment, public debts will not be manageable with this level of growth. if we stay in the zeropoint something area, >>: that will not mean we out of the wood. that would mean the worst is yet to come both in terms of unemployment, in terms of public debt, in terms of social malaise and when social malaise becomes too big, i mean it's a real trouble. >>friedman: so you've got rising asia, flat europe and hobbling america? and what does that mean about the global economy
that china and asia will be in your view leading the recovery and the leading the economy for the next few years? >>passera: asia will be a strong contributor to the planet's growth but considering the size of their economiesthat will not be enough to compensate for the low level of growth in the united states and in europe. so thank china but it's not enough. we have to do more. >>abiract to ave affected the world's largest motorcycle manufacturer, hero honda. the firm recorded an 86 percent jump in profits in the last 9 months of 2009 over the previousyear. so what is driving such huge demand in motorcycles in india and what is the road ahead for the company. >>reporter: these suvs blasting across
>>reporter: these suvs blasting across the desert sands of dubai make for a stunning sight. in an event organised by a company that keeps posting some stunning results - hero honda >>: every year the indian firm hero honda takes its 600 dealers to an exotic location to thank them for their work. this year, it chose the desert. >>munjal: every event that we do has to do better than the previous event. where we are standing right now, right in the middle of the desert, i thought was a setting not to be missed. >>reporter: they have every reason to celebrate. while car firms struggle, merge and carry out high profile recalls, the world's largest two
wheeler manufacturer is on a roll. profits for 2009 were up 68 million dollars and one of the firm's great strengths is its strong sales network. >>goel: we have all got our own responsibility, like in an extended family, brothers, kids, everyone has a role, you have to look after marketing, you have to look after production. so my responsibility is managing a showroom, i'm doing that. we are all working together like a joint family. >>reporter: pawan munjal is the international face of hero honda. the munjal family own the hero group that began as a bicycle manufacturer in india. in 1984, they formed a joint venture with honda to make motorcycles. starting from scratch, they now sell 4.4 million a year bringing in revenue of 2.8 billion dollars. >>munjal: without doubt honda is the number one producer of technology for two wheelers, and we have availableto us the best of technology at all times. hero, the munjals, bring
to the table their management skills, their marketing and distribution skills, the ancillary networks around us - which comes from the good old days of bicycles, of hero cycles - the relationships, their values. it's an amalgamation of the best of both worlds. >>reporter: the firm now accounts for almost 2 thirds of total motorcycle sales in india, yet despite this enviable position must innovate to stay ahead. competitors like bajaj auto, which essentially controls the other third continue to put pressure with new and cheaper models. hero honda cannot afford to resteasy on its motorbike seat. >>dua: it's a very competitive world as you know, as unless you innovate, and unless you are ahead of the curve, it could be very unforgiving. >>reporter: the bread-and butter segment in india remains the entry-level 100cc
motorcycle, where hero honda hasa staggering 80 percent of the market. with an eye on further expansion, the company is now bringing microfinance to the motorbike market. >>goel: there are a lot of customers in rural india who would like to take a loan. earlier there was no financing option, so people used to pay cash. now we provide them with bike loans so a new market has opened for us - such as teachers and other salaried people, not everyone in rural india is a farmer. they need loans, so we provide the finance. >>reporter: at present the penetration rate of two wheelers in india is a mere 9 percent in rural areas and 19 percent in urban areas. there is clearly a huge market potential. >>: but the company could find its margins under pressure in this quarter, as commodities prices have shown an upsurge in the past few months. raw material prices, such as steel, aluminium and rubber, have gone up worldwide.
>>dua: if the commodity prices go up, and the whole industry price table moves up, i think we are competitively placed given the strength of our brands to get that premium in our pricing, which should protect our margins. >>reporter: a more long-term challenge is competition from its partner honda itself. a change in their partnership in 2004 allowed the japanese company to start making motorcycles in india on its own. it has now joined the entry-level segment that has so far been a stronghold of hero honda. the indian company, meanwhile, is responding with innovations of its own. >>munjal: people in the organisation are given a free hand to innovate, to think, to come up with new ideas - it could be for cost reduction, for new technology, new styling, for new designs, for new manufacturing processes. >>reporter: today the goal is merely to have fun in the desert, blasting through some challenging terrain and rewarding his dealers.
but looking ahead munjal's focus will be on his home country of india, growing fast and rich in opportunities. and perhaps even taking hero honda's low cost model to other developing markets in latin america, south asia and africa. >>abirached: that's it for this week's world business. thanks for watching. we'll see you again at the same time next week.